Michael Bohm: The New Kremlin Dreamers
[Michael Bohm is the opinion page editor of The Moscow Times.]
Several weeks ago in Voronezh, First Deputy Prime Minister Igor Shuvalov said the ambitious goals for "Strategy 2020" remain in place despite the economic crisis. He also said Russia has every chance of becoming the world's most desirable place to live by 2020. "This is no fairy tale," Shuvalov added, but if you examine the strategy closely, it certainly looks like one.
Consider the four main goals of Strategy 2020:
1. Increase per capita gross domestic product to $30,000 from its current $15,800 based on purchasing-power parity. Although it is difficult to compare developed economies with developing ones, it took Canada 28 years, Britain 24 years, Japan 27 years and the United States 35 years to double their per capita GDPs. How will Russia do it in only 11 years? True, if you look at a BRIC country -- China -- it was able to double its per capita GDP income in less time, but China's has enjoyed average GDP growth of more than 10 percent over the past decade (its "crisis growth" in 2009 is expected to be 8 percent!), while Russia's growth rate has been much lower for this period. It would be more appropriate to look at Brazil, another BRIC country, which has a profile much closer to Russia. Brazil has not been able to accomplish doubling its per capita GDP over a 11-year period since 1980.
2. Increase life expectancy to 75 years. This doesn't require any doubling, but it still requires a 13.6 percent increase over current life expectancy of 66 years. The only way this goal can be reached is if Russia is able to bring its health care system up to Western standards by 2020 and if the majority of Russians are able to change their unhealthy lifestyles.
3. Increase the middle class to 60 percent of the population. This is a tricky one since it depends on how you define "middle class." Russia often uses a monthly income of 15,000 rubles ($454) as a starting point. True, every country has its own definition of a "middle-class lifestyle," but 15,000 rubles is a stretch any way you look at it, particularly considering Russia's chronically high inflation.
4. Jump to the No. 5 spot from its 2008 ranking of No. 8 in the world in terms of nominal gross domestic product. Let's look at who occupied that spot in 2008 -- France, whose nominal GDP is roughly 70 percent larger than Russia's according to the CIA World Factbook. Since Russia is so dependent on natural resource exports for its GDP growth, its economy can grow only if the economies of the leading oil and gas importers -- mainly the Group of Seven nations and China -- grow. If these countries decline, so does Russia, as the current crisis clearly shows. Of course, nanotechnology, commercial space and other high-tech sectors could be the silver bullet that propels Russia to the No. 5 spot, but the logical question is: Even if Russia becomes a high-tech leader, who is going to buy all of that wonderful technology if the world's leading economies are in decline?
Once the crisis passes, what would it take for Russia to replace France in the No. 5 spot? If France's economy grows at a modest 2.5 percent annually, Russia's economy would need to grow by 9 percent per year to close the gap. But even in the oil-boom years from 2004 to 2008, Russia's real GDP growth averaged only about 7 percent annually.
But the most important ranking is not mentioned in Strategy 2020 at all -- the Transparency International's corruption index, in which Russia ranks 147 out of 180 countries in 2008. Corruption is particularly onerous for Russia's struggling small and medium-size businesses, which make up only 10 percent to 15 percent of the country's GDP. In the United States, small and medium-size businesses are the engine of economic growth, comprising roughly 50 percent of the country's private GDP and creating about two-thirds of net new jobs annually.
As long as Russian bureaucrats (and competitors) are free to terrorize businesses by creating "administrative barriers," extorting bribes and raiding, economic growth in the real sector will always be insignificant. To his credit, President Dmitry Medvedev is backing a new law to assist small businesses, which will, among other things, limit the number of government inspections of businesses. Most likely, however, these limitations will be easily sidestepped when bureaucrats simply extort a larger amount of money per inspection.
To be sure, many Russians already consider Russia to be a very desirable place -- without Shuvalov's help. And this is also true for foreigners, including the editors and reporters of this newspaper, who voluntarily choose to live and work in this country. But for those who don't believe this to be true, even the most advanced Kremlin propaganda will do little to make Russia more desirable. To rephrase a Russian expression, no matter how many times the Kremlin PR machine repeats the word "halva," it won't make Russia any sweeter.
Kremlin myth-making has a rich tradition, dating back to the very beginning of the Soviet Union. When British writer George Wells visited Lenin in 1920 and learned of his utopian 10-year plan to create wonders out of a country very much still in ruins in the aftermath of the Bolshevik Revolution, he called Lenin "The Kremlin Dreamer."..
Read entire article at Moscow Times
Several weeks ago in Voronezh, First Deputy Prime Minister Igor Shuvalov said the ambitious goals for "Strategy 2020" remain in place despite the economic crisis. He also said Russia has every chance of becoming the world's most desirable place to live by 2020. "This is no fairy tale," Shuvalov added, but if you examine the strategy closely, it certainly looks like one.
Consider the four main goals of Strategy 2020:
1. Increase per capita gross domestic product to $30,000 from its current $15,800 based on purchasing-power parity. Although it is difficult to compare developed economies with developing ones, it took Canada 28 years, Britain 24 years, Japan 27 years and the United States 35 years to double their per capita GDPs. How will Russia do it in only 11 years? True, if you look at a BRIC country -- China -- it was able to double its per capita GDP income in less time, but China's has enjoyed average GDP growth of more than 10 percent over the past decade (its "crisis growth" in 2009 is expected to be 8 percent!), while Russia's growth rate has been much lower for this period. It would be more appropriate to look at Brazil, another BRIC country, which has a profile much closer to Russia. Brazil has not been able to accomplish doubling its per capita GDP over a 11-year period since 1980.
2. Increase life expectancy to 75 years. This doesn't require any doubling, but it still requires a 13.6 percent increase over current life expectancy of 66 years. The only way this goal can be reached is if Russia is able to bring its health care system up to Western standards by 2020 and if the majority of Russians are able to change their unhealthy lifestyles.
3. Increase the middle class to 60 percent of the population. This is a tricky one since it depends on how you define "middle class." Russia often uses a monthly income of 15,000 rubles ($454) as a starting point. True, every country has its own definition of a "middle-class lifestyle," but 15,000 rubles is a stretch any way you look at it, particularly considering Russia's chronically high inflation.
4. Jump to the No. 5 spot from its 2008 ranking of No. 8 in the world in terms of nominal gross domestic product. Let's look at who occupied that spot in 2008 -- France, whose nominal GDP is roughly 70 percent larger than Russia's according to the CIA World Factbook. Since Russia is so dependent on natural resource exports for its GDP growth, its economy can grow only if the economies of the leading oil and gas importers -- mainly the Group of Seven nations and China -- grow. If these countries decline, so does Russia, as the current crisis clearly shows. Of course, nanotechnology, commercial space and other high-tech sectors could be the silver bullet that propels Russia to the No. 5 spot, but the logical question is: Even if Russia becomes a high-tech leader, who is going to buy all of that wonderful technology if the world's leading economies are in decline?
Once the crisis passes, what would it take for Russia to replace France in the No. 5 spot? If France's economy grows at a modest 2.5 percent annually, Russia's economy would need to grow by 9 percent per year to close the gap. But even in the oil-boom years from 2004 to 2008, Russia's real GDP growth averaged only about 7 percent annually.
But the most important ranking is not mentioned in Strategy 2020 at all -- the Transparency International's corruption index, in which Russia ranks 147 out of 180 countries in 2008. Corruption is particularly onerous for Russia's struggling small and medium-size businesses, which make up only 10 percent to 15 percent of the country's GDP. In the United States, small and medium-size businesses are the engine of economic growth, comprising roughly 50 percent of the country's private GDP and creating about two-thirds of net new jobs annually.
As long as Russian bureaucrats (and competitors) are free to terrorize businesses by creating "administrative barriers," extorting bribes and raiding, economic growth in the real sector will always be insignificant. To his credit, President Dmitry Medvedev is backing a new law to assist small businesses, which will, among other things, limit the number of government inspections of businesses. Most likely, however, these limitations will be easily sidestepped when bureaucrats simply extort a larger amount of money per inspection.
To be sure, many Russians already consider Russia to be a very desirable place -- without Shuvalov's help. And this is also true for foreigners, including the editors and reporters of this newspaper, who voluntarily choose to live and work in this country. But for those who don't believe this to be true, even the most advanced Kremlin propaganda will do little to make Russia more desirable. To rephrase a Russian expression, no matter how many times the Kremlin PR machine repeats the word "halva," it won't make Russia any sweeter.
Kremlin myth-making has a rich tradition, dating back to the very beginning of the Soviet Union. When British writer George Wells visited Lenin in 1920 and learned of his utopian 10-year plan to create wonders out of a country very much still in ruins in the aftermath of the Bolshevik Revolution, he called Lenin "The Kremlin Dreamer."..